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My July 2006 recommendation on t1ps.com (the site I founded in 2000 and edited until this September) of shares in specialist IT recruitment group, InterQuest (LSE:ITQ) is not one which has covered me in glory. Having tipped the shares at 67.5p, they traded above 80p until economic conditions darkened in the second quarter of 2008. A low of 30.5p was hit in February 2009 and the shares again traded at sub 35p in August of this year. Having recovered a bit, to a current 44p, since I take a look here at the company’s results for the first half of 2012 and their implications on the current investment case…
The results for the six months to 30th June revealed an adjusted pre-tax profit of £932,000 on revenue 5.5% lower than in the corresponding 2011 period, at £55.81 million, generating earnings per share of 2.20p – down from 3.94p. At the period end net debt totalled £6.38 million, though there was a net current asset position of £3.15 million and just £69,000 of non-current liabilities.
The results are from a period of investment in the business as alignment is sought with sectors of the market which are considered to provide increased opportunities for future growth – this has seen, for example, the development of a first overseas office in Singapore and a focus on higher value contracts in contrast to higher volume, low margin sales.
The company is undoubtedly currently facing a challenging market environment – the results statement noted “trading conditions have deteriorated since the start of the year, both in the UK and Far East, particularly in the second quarter and particularly in the banking and finance sectors” – but looks to be putting in place a sensible platform for future growth and its confidence in this is reflected in a maintained interim dividend of 0.5p per share and £26,752 of net director share buying since the interim results announcement. This has included Executive Chairman Gary Ashworth, who founded the business and is no mug, taking his holding up to 38.44%.
The current profit run-rate and future growth prospects mean that a present market cap of £14.6 million doesn’t look overly aggressive. With the shares having recovered from August lows of 34p I consider there no rush to get involved here currently, but continue to have faith in Gary Ashworth’s skills in this sector and that the foundations currently being laid will yield shareholders a positive medium – long-term return as economic conditions gradually improve. Forecasts are for underlying earnings of 4.9p this year and of 8.8p for calendar 2013 as the investment in growth is scaled back and the returns come in.
My assumption is that the final 2p dividend will be maintained on which basis the shares yield 5.7%. Given Ashworth’s large personal stake I reckon that the payout is safe. As such paying a 2013 PE of 5 and waiting for a re-rating but generating a decent income stream while you wait seems a good enough option. Not a red hot penny share to race away but a decent long term buy if you can get a few shares at around this level.
If you are looking for a quality growth stock to BUY a new Growth stock investment idea with net cash and which is profitable and dividend paying went live last night on Tom’s new website, the Nifty Fifty. To access that idea plus all the other content at once click here
Tom’s premium share website The Nifty Fifty was launched on October 28th 2012. Having created and run the t1ps website for 12 year his average gain per tip there was 42.7% (over 241 tips) with an average holding period of 36 months. His new website promises more of the same. It also publishes a weekly short letter looking at stocks set to tank – this week’s Short Letter is out on Thursday.
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that free material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
